In our work with international tax clients at Kerkering Barberio, we often talk with people who did or perhaps still live in another country. They have homes and families and careers outside the U.S. and maybe a business. They probably have foreign bank accounts, financial investments, and pension plans. The question we are often asked is, “Will I have to file a tax return in the U.S. when I become a U.S. tax resident?”
Once you obtain your Permanent Resident status, also known as your Green Card, or otherwise become a U.S. tax resident, you will have to start filing U.S. income tax returns and foreign disclosures for your worldwide income and financial assets, just as if everything was held and located in the U.S. World-wide income includes compensation such as wages and self-employment income as well as investment income from banks and securities. Distributions from pensions and net rental income from property in the other country will also be taxed in the U.S. Any business interests you have in the other country will be subject to U.S. international tax rules. If you are paying tax on any of this income in the other country, there may be a foreign tax credit calculation to reduce the U.S. tax liability on the same income.
Planning Tip: Meet with a Kerkering Barberio international tax professional to understand U.S. tax issues on world-wide personal income and international business income and how the foreign tax credit may reduce your U.S. tax liability.
In addition, any financial accounts held outside of the U.S. are reported annually on the Foreign Bank Account Report (FBAR). Certain other financial disclosures for your foreign financial assets may also be required.
Planning Tip: Ask the Kerkering Barberio international tax group about the FBAR and financial disclosure requirements. Our experienced professionals may be able to help you minimize the reporting burden.
There are unique U.S. tax rules and tax rates on foreign mutual funds (called PFICs in the U.S.). A prudent step is to consider selling these mutual funds before you become a U.S. tax resident to avoid taxation under the PFIC regime.
Planning Tip: Discuss your investment portfolio and financial assets with us before relocating to the U.S. to analyze the U.S. taxation of and possible repositioning of your portfolio in a tax efficient manner.
If you have a pension plan outside the U.S., you may be able to claim benefits under a U.S. Income Tax Treaty in the form of deferring taxation of earnings until distributions start. Once you start taking distributions, the distributions will be taxable on your U.S. income tax return. If there is no treaty benefit with the other country, the annual earnings in the account may be taxable even if you are not taking distributions and even if it is tax-free in the country where the plan is located.
If you receive social security-type benefits from the other country, some U.S. Income Tax Treaties provide relief from double taxation by limiting taxation of this income to the resident country, which in this case would be the U.S.
Planning Tip: Inquire if the U.S. Income Tax Treaty with your other country provides relief from double taxation on your retirement income. Any time you rely on a treaty benefit, you may have to disclose the treaty article you are claiming on your U.S. income tax return.
U.S. Income Tax Treaties do not provide a similar benefit for tax-free savings accounts which are popular in other countries. As a result, U.S. tax rules treat the tax-free accounts as if they were regular savings or brokerage accounts and interest, dividends and capital gains are taxed in the U.S. in the year earned.
Planning Tip: Seek advice about your U.S. income tax and foreign disclosure reporting obligations. Finding the right U.S. international tax professional helps non-residents moving to the U.S. successfully navigate the complexities of compliance.
If you have questions about the U.S. reporting of your world-wide income and financial assets, talk with a U.S. international tax professional who has expertise in U.S. tax rules for international tax and other country compliance reporting. Whether you are planning to become a U.S. tax resident in the future or you already are, the U.S. international tax professionals at Kerkering Barberio & Co. have the knowledge and experience to assist you with your U.S. tax filings and disclosure requirements. We also consult to identify planning opportunities to bring your foreign financial assets to the U.S. to lessen your income, tax and reporting obligations. Contact Phoebe Trumpler at or Danielle Logan at or call us at 941-365-4617.
About the Author:
Phoebe Trumpler, CPA joined Kerkering Barberio in 2005 and was admitted as a shareholder in 2016. Ms. Trumpler’s primary practice is in International Tax, providing consulting, tax planning and preparation of U.S. tax returns for U.S. citizens and tax residents who have international income and investments. She assists individuals with offshore tax compliance issues related to Foreign Bank Account Reports (FBAR) and the Foreign Account Tax Compliance Act (FATCA). She also works with high net worth individuals who have only US income and accounts and assists them with tax planning and tax preparation needs. Phoebe can be reached by email at or phone at (941) 365-4617 x1352.